CLSA positive on Infosys; says on-ground demand remains largely unchanged; stock rises 2%

Infosys, India’s second-largest IT services company, has received an upgrade from international equity research firm CLSA. CLSA upgraded Infosys following a recent correction in stock price and on an assessment that the on-ground demand largely stays unchanged.

The announcement led to a surge in Infosys shares, rising as much as 1.95% to hit an intraday high of ₹1,719.

Infosys shares have corrected 16% from their 52-week high of ₹2,006.45, the stock touched on December 13, 2024, data from the National Stock Exchange showed.

CLSA’s upgrade is driven by Infosys' strong positioning in the IT sector, particularly in the wake of discretionary demand revival across key geographies and verticals. CLSA noted that conversations with various company management teams, including Infosys, indicated no material change in the demand outlook for Q4FY25.

Furthermore, S&P 500 EPS growth forecasts remain robust, projecting mid-teen growth over 2025-26, which signals strong cyclical tailwinds for the sector.

Infosys is particularly well-positioned to capitalise on the growing adoption of artificial intelligence (AI) and SaaS-based solutions, including SAP S4Hana, Salesforce, and Nvidia ecosystem collaborations, CLSA added.

While Q4FY25 is expected to be seasonally weak in terms of constant currency (CC) quarter-on-quarter (QoQ) growth due to wage hikes and margin pressures, CLSA believes that Infosys' stock has already priced in these short-term headwinds. The firm highlighted that client sentiments around tech spending have improved compared to the previous year, and large deal wins continue to strengthen Infosys' growth trajectory.

Infosys is also at the forefront of AI democratisation, collaborating closely with SaaS providers. This puts Infosys in a strong position to benefit from digital transformation deals and vendor consolidation opportunities, particularly in regions affected by economic uncertainties, CLSA highlighted.

CLSA pointed out that global tariff-related uncertainties might lead Infosys to provide a wider FY26 revenue growth guidance, likely growth in the range of 4-7% in constant currency terms. For the current financial year, Infosys has guided revenue growth of 4.5-5%.

Despite potential headwinds in the European and Autos verticals due to tariff issues, Infosys is expected to benefit from cost optimisation initiatives and mega deal opportunities arising from vendor consolidation.

Infosys is currently trading at its seven-year average price-to-earnings (P/E) multiple of 24 times, with an improving revenue growth trajectory projected over FY26-27.

As of 11:37 am, Infosys shares traded 1.42% higher at Rs 1,709.90, outperforming the NIFTY50 index, which was up 0.24%.